When leaving an employer, one of the biggest financial decisions you face is whether to leave your pension where it is or roll it into an Individual Retirement Account (IRA) in the U.S. or a Locked-In Retirement Account (LIRA) in Canada. While every situation is unique, there are strong reasons why rolling over your pension is often the better choice.
- Protection from Employer Financial Struggles
Pensions depend on the long-term health of the employer or the pension plan itself. If the sponsoring employer or plan experiences financial difficulties, your pension benefits could be reduced. A recent U.S. appeals court decision upheld a 2014 ruling that allows multi-employer pension plans to cut promised benefits if financial problems arise. This reinforces the risk of leaving your pension under the control of your former employer.
By contrast, rolling your pension into an IRA or LIRA removes that dependency. Your retirement savings become yours, held in your name, and not exposed to the fortunes of a company you no longer work for.
- Potentially Higher Returns with Diversification
Employer-sponsored pensions often grow at a relatively conservative rate. While this stability may feel safe, it typically means lower long-term returns compared to what can be achieved through a well-diversified investment portfolio.
An IRA or LIRA gives you access to a broad range of investments—stocks, bonds, ETFs, and more—so your retirement savings can benefit from market growth tailored to your risk tolerance and goals. Over decades, this diversification and compounding can make a substantial difference in retirement outcomes.
- Better Legacy and Estate Planning Options
Pensions often come with limited survivor benefits, sometimes only covering a spouse and at reduced amounts. Once both spouses pass, the benefits generally stop.
With an IRA or LIRA, the remaining balance belongs to your estate and passes to your heirs through beneficiary designation. It can pass directly to your heirs, subject to taxes. In Canada, the deemed disposition rules apply, and in the U.S., required distributions may be triggered, but your beneficiaries still inherit the full remaining value and can continue to let the funds grow tax-deferred for up to 10 years. This flexibility makes rolling over especially valuable for those who want to leave a financial legacy.
While pensions provide a sense of stability, the risks of reductions, limited returns, and restricted survivor benefits make them less attractive in the long run. The recent court ruling on pension cuts highlights the importance of taking control of your retirement funds.
Rolling your pension to an IRA or LIRA can give you more security, growth potential, and estate planning flexibility, helping you build a stronger and more reliable retirement future.
